(Jan 26): Indonesian stocks recorded their first outflow since October last week, driven by cooling risk appetite ahead of a change by MSCI Inc in its indexing methodology.
Overseas investors sold US$192 million worth of local stocks last week, marking their first outflow in 16 weeks, according to data compiled by Bloomberg. The withdrawals came after Indonesia’s equity benchmark rose to a record on Jan 20.
“Last week’s selling by foreigners was a mix of some paring ahead of MSCI’s free float-related announcement and profit taking,” said Nirgunan Tiruchelvam, an analyst at Aletheia Capital. “Even some of local money has gone out.”
Goldman Sachs Group Inc strategists including Alvin So wrote in a note on Friday (Jan 23) that MSCI’s recalculation of Indonesia’s free float may cause passive funds to pull out about US$2.3 billion from the stock market in coming months.
MSCI will decide by January-end whether to tighten its definition of free float — the shares available for trading and a key determinant of a stock’s weighting. If it finds that Indonesian firms, which already have Asia’s smallest average free float, have less stock available for trading than reported, passive investors would be forced to cut holdings. Any changes will take effect in its May review.
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“The upcoming MSCI free-float review has added an additional layer of caution,” said Ernest Chew, head of Asean equities at BNP Paribas Asset Management. “The recent outflows are more of a tactical de-risking and positioning adjustment rather than a fundamental shift.”
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